China's largest conglomerate, Citic Limited, sold a $1.25 billion dual-tranche bond on Monday; disdaining a new issue premium despite Asia's weakening credit backdrop.
The state-owned company brought its five-and-a-half year and 10-year deal to market on a day when Asian investment grade credit spreads widened roughly 3bp in response to Friday’s big move in Treasuries.
Weaker than expected US jobs data prompted a 10bp rally in 10-year Treasuries last Friday and while Asian credits outperformed their underlying benchmark on Monday, one fund manager told FinanceAsia that Citic should have offered some concession to the market.
The A3/A- group, nevertheless, managed to build up a peak order book of $4.25 billion, which was evenly split between the two tranches.
Initial price guidance for the Reg S deal was set at 180bp and 225bp over Treasuries, respectively, before being tightened to 155bp-160bp on the shorter-dated tranche and 200bp-205bp for the longer-dated.
Final pricing of a $500 million December 2021 tranche was fixed at 99.975% on a coupon of 2.8% to yield 2.805%, or 155bp over Treasuries.
A $750 million June 2026 tranche was priced at 99.785% on a coupon of 3.7% to yield 3.726%, or 200bp over Treasuries according to a term sheet seen by FinanceAsia.
"This shows tight pricing is still achievable for Chinese SOE’s,” one banker commented. “Aggressively priced transactions are possible in current market conditions.”
The closest comparables were the company's existing 6.62% April 2021 and 6.8% January 2023 notes. These were trading 148bp and 172bp over Treasuries, or G-Spreads of 150bp and 192bp.
The Hong Kong-based fund manager said the deal was relatively unattractive given the complete lack of new issue premium relative to secondary market trading levels.
"The existing 2021 bonds are fair value for a low single-A rated company," the manager commented.
"Investors' biggest concern remains Citic’s iron ore project in Australia," he added. "Steel prices are threatened by China's slowing demand."
Citic may incur another HK$4 billion to HK$5 billion loss ($515 million to $644 million) from the Sino Iron project over 2016 to 2018 given the bleak prospects for iron ore prices, according to analysis by Goldman Sachs in March.
After years of losses, the Hong Kong-listed company has embarked on a restructuring plan, which led to the sale of its residential property assets to China Overseas Land & Investment for in March for $4.8 billion.
According to its latest annual results, Citic's net profit was up 5% year-on-year to HK$41.8 billion ($5.4 billion) in 2015. This included a HK$10 billion disposal gain on Citic Securities and HK$12.5 billion impairment loss on its Australian iron ore project.
Besides its mining assets, the Beijing-based group owns a 64.4% stake in Citic Bank, China's tenth largest lenders by assets in China, as well as steel, manufacturing and telecom businesses.
Citic’s new deal was issued under the group’s existing $9 billion global medium-term note programme, with proceeds being used for re-financing purposes.
The company recently announced that it has redeemed its $750 million 7.875% perpetual securities early.
Joint global coordinators for the transaction were Citic CLSA, UBS and HSBC, while BOCI, Citic Bank International and Natixis joined as joint bookrunners.
